Even a big global player such as HSBC will struggle to be all things to all clients, so its Global Asset Management business is focusing on two areas.
Impact of regulation
Regulatory trends are driving changes and offering opportunities. Clark says: “The Retail Distribution Review (RDR) in the UK, for example, is having an impact. It will spread across Europe eventually. It has moved pricing competitively as providers challenge for market share, and it will continue to do so.”
He also notes a tightening of groups able to compete cross border. “The fund ranges of many asset managers are huge. People are jaded with the number of funds on offer, and the cost of them. That is why passive investing has come on so strongly in the past couple of years.”
In addition, the pressure on fees is getting stronger, especially with the rise of investment platforms, he says. The new focus reflects Clark’s belief that investors will increasingly turn to high growth emerging markets, where the risk premium is far less justified than it was.
Advisers, meanwhile, want greater transparency on manufacturing costs, which is exactly what the UK’s RDR is set to deliver. The challenge for fund providers will be to offer far greater ‘see through’ on their product ranges as distribution becomes more complex.
“With the RDR, the price of a fund may well be very different on different platforms. Then it becomes not only how to choose the right fund, but how to choose the right platform,” Clark says.
“Soon, there may be platform comparison sites, so the decision shifts or extends from one focused on investment, to another one focused on the distribution channel.”
Like other large firms, including Lyxor Asset Management, HSBC GAM recently moved its ETF platform, launched in 2009, from its global markets arm to the asset management unit. Critics said it was a cost cutting measure, and some questioned commitment to the market. But Clark said the aim of the move was to grow the business by using the distribution capability with the asset management business.
And so it has proved: in the UK, HSBC GAM has doubled its index business over the past 18 months to be worth some £2.2bn. It also sparked comment when it cut the annual charge on its passive funds. Clark’s response, applauded by advisers and investors alike, was that there obviously has to be a price differential between actively and passively managed funds.
For all fund providers, emerging markets are the focus of much marketing in recent months as developed markets have sunk under the burden of sovereign debt. Clark points out that HSBC GAM’s expertise is a real network of intelligence and expertise, not just a list of sales offices.
He says: “We have hundreds of good high alpha ideas about emerging markets. But new funds will only be launched where the firm has a definite advantage. We are keen to do what we believe we can do well, but I don’t like marketing-led, ‘me-too’ funds.”
Product ideas are channelled through a central team in London to test whether they are durable and scaleable. “We recognise that demand for product varies in different places,” Clark adds.
“But if an idea does not make a fund, it might be suitable as a separately managed mandate. It is a process of creative friction – and it may be for ‘what might be’, rather than immediate interest. For example, we launched an RNB bond fund some time ago for what it ‘might be’. It is now at £100m (€123m). We decided we wanted to be seen as a player in that market.”
Despite the strong brand value of the HSBC name, Clark says in-house funds have to compete to be on the bank’s buylists, like every other provider.
“There is no automatic seat at the table. The company ethos says we have to feel the full force of external competition, so that the bank itself has confidence in our offering.”